Written by

Paul E. Kostyu

Reaction to the budget

Here are some of the reactions from people across the state to the governor’s proposed two-year budget.

“While we continue to study the budget details, it is clear the governor’s biennial budget proposal offers Ohioans a mixed bag. The promise of tax reforms and reductions are positive, but paying for them in part with increasing severance taxes on farmers with oil and gas under their land is a mistake.” - Seth Morgan, policy director, Americans for Prosperity – Ohio

“The governor’s proposal to reduce by 50 percent the personal income tax on the first $750,000 of income of the owners of pass through (business) entities is truly innovative and could have a significant positive impact.” - Eric Burkland, president, The Ohio Manufacturers’ Association

“We don’t pay taxes to pad the governor’s sound bites, we pay them to maintain our roads and keep cops on the street. It’s simply illogical governance to make the state look good while in the process hurting Ohio’s cities.” - P.G. Sittenfeld, Cincinnati city councilman

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COLUMBUS — Ohio’s governor wants to spend more money, but cut tax rates significantly over the next two years in a budget called “Jobs 2.0” he released Monday.

But the tax rate cuts would come as the sales tax would be levied on more services.

The fiscal year 2014 budget would climb 6.1 percent over current spending to $63.7 billion for all funds. Then another 4.8 increase would come the following fiscal year when the budget would reach $66.8 billion.

Even as the budget increases, Gov. John Kasich wants to reduce the state’s sales-tax rate from 5.5 percent to 5 percent. He also would slash income tax rates by 50 percent for small businesses and 20 percent on individual Ohioans. Those cuts come over three years, along with the spending cuts he implemented in the current two-year budget.

“Avoiding tax increases, combined with government restraint, has put us in a position where we can realize the fruits of our labor,” the governor said.

The new budget would include tax increases, though – in the form of sales taxes levied for the first time on many more services, such as those provided by lawyers, architects, financial advisers, accountants, real estate agents and lobbyists. The new tax also would hit cable TV, the arts, entertainment and scientific research. Health-care providers, education and social services would be exempt.

The broader tax is expected to generate $4 billion.

Senate Minority Leader Eric H. Kearney, D-North Avondale, criticized the budget, calling it “smoke and mirrors” for glossing “over a massive tax increase. The bottom line is he’s raising taxes on Ohioans by billions of dollars.”

Policy Matters Ohio, a left-leaning think tank in Cleveland, said the budget would “take Ohio in the wrong direction by shifting a greater share of taxes onto lower- and middle-income Ohioans.”

Officials there said the state cut income tax rates eight years ago, and, since then, “we have seen worse job, income and output performance over that time than the country as a whole. Why would we want to double down on a bet that hasn’t worked?”

Shifting taxes reflect culture changes

Tax Commissioner Joseph W. Testa said Ohio has moved from a product to a service culture and the changes in the sales tax are needed to “align the tax code with the realities of the economy.”

In addition, Kasich also will try again to increase the severance tax on natural gas and oil drillers.

He made a similar attempt two years ago, but failed to convince enough lawmakers, including fellow Republicans, to agree. He said he feels sure the tax increase will be OK’d this time, as more “fracking” occurs in eastern Ohio.

Ohio’s small, conventional natural gas producers – about 90 percent of the wells in the state – would see their severance taxes eliminated.

However, the severance taxes on out-of-state drillers would go from 20 cents on a barrel of oil to a fixed rate of 4 percent. Kasich said that’s still lower than what many other states charge.

A spokesman for the conservative Americans for Prosperity called increasing the tax “a mistake.”

Kasich confirmed what he has been hinting at for a couple weeks – he wants to expand Medicaid to cover the health care costs of more lower-income Ohioans.

Meanwhile, Kasich predicted the state’s surplus, called the rainy day fund, would climb to $1.9 billion by June 2015. That means, by law, $400 million will have to be returned to taxpayers through a temporary tax cut in addition to the 20 percent cut.

“It’s not enough that some should do well,” he said. “Everyone in Ohio should have the prospect of doing better. And I think we’re getting there.”

GOP-run legislature makes next moves

The budget proposal now goes to the Legislature, where it will be dissected first in the House and then in the Senate. The two chambers must approve the budget and Kasich sign it before June 30, the end of the 2013 fiscal year.

Legislative leaders were briefed on the budget Monday morning. House Speaker William G. Batchelder, R-Medina, attended the more than 90-minute briefing of the budget by Kasich, Budget Director Timothy S. Keen and other members of the administration.

Batchelder didn’t comment, but he nodded his head in agreement throughout the news conference. House Minority Leader Armond Budish, D-Beachwood, in a statement praised the governor’s proposed expansion of Medicaid.

Kasich took pains to reiterate his strong opposition to President Barack Obama’s Affordable Care Act, but he also complimented the Obama administration for reaching out to Ohio to discuss how the state can best move forward with the Medicaid expansion.

759-page spending plan's other details

There are about 1,200 line items in the budget. The proposal also would:

• Expand Medicaid up to 138 percent of the federal poverty level or $15,414 for an individual and $31,809 for a family of four.

Ohio saved $1 billion in each of the last two years by holding down Medicaid costs, state officials said.

• Change how public education is funded by leveling the amount sent to districts based on property and income levels.

“We have created a much more equitable level of funding with this plan,” said Barb Mattei-Smith, assistant policy director of education. The education plan was released separately last week.

• Make higher education funding rely more on graduation rates rather than enrollment. The budget devotes about $2.4 billion to higher education.

• Leverage the Ohio Turnpike through the sale of bonds, which then would be used to attract federal matching dollars that can be used throughout the state.

Asked about the dividing line between northern and southern Ohio, Transportation Director Jerry Wray didn’t answer. That line is critical because Turnpike money will only be spent north of it.

• Increase the state contribution to county public defenders offices from 35 percent to 40 percent. “I assume that’s good news,” said Hamilton County Public Defender Ray Faller.

He is concerned, however, that county commissioners could divert the increase to pay other bills.

• Boost the money going to the Ohio Attorney General’s Office by 3.4 percent in the first year of the two-year budget to $45.7 million, then flatlines the state contribution.

• Leave the budget for the Department of Rehabilitation and Corrections near its current budget, boosting it slightly – by 0.5 percent to $1.5 billion.

• Leave in place the cuts to the local government fund in the current budget. Cincinnati City Councilman P.G. Sittenfeld, a Democrat, criticized that decision.

“At a time when local governments are being forced to slash basic services, lay off safety personnel, raise taxes and sell off assets just to stay afloat,” he said, “it’s out of touch for Gov. Kasich not to reverse his raid on our local government fund.”

• Call for no changes in benefit levels or eligibility requirements and maintains all Job and Family Services programs and assistance, according to agency spokesman Ben Johnson.

Kasich said he anticipates different groups, as well as lawmakers, would try to change his budget: